(1) Relief under section 37 is not available for a loss made in a trade unless for the loss-making period (see section 37(3)(a)) the trade is carried on—

(a) on a commercial basis, and

(b) with a view to the making of a profit in the trade or so as to afford a reasonable expectation of making such a profit.

(2) References in subsection (1)(b) to a profit in the trade include references to a profit in any larger undertaking of which the trade forms part.

(3) If during the loss-making period there is a change in the way in which the trade is carried on, it is treated as having been carried on throughout that period in the way in which it is being carried on by the end of that period.

(4) The restriction on relief under this section does not apply if the trade is a trade carried on in the exercise of functions conferred by or under an Act (including an Act of the Scottish Parliament).

This sections prohibits the utilisation of trade losses where that trade is not carried on with a reasonable expectation of profits. This includes surrendering the losses through group relief.

Essentially, this provision prevents owners of businesses subsidising loss-making enterprises through corporation tax deductions as part of a larger structure.

I mostly skimmed the post and Rusbridger’s piece, but one thing leapt out at me. Rusbridger states:

The Guardian has never been run for profit, which is just as well, given that it has not inevitably – or even often – made one.

If Rusbridger really meant this in an actual sense, the Guardian wouldn’t be able to surrender losses by virtue CTA 2010, s 44 (in conjunction with s 100). And Guardian News and Media Limited do actually surrender their losses to other members of the group. (Guardian News and Media Limited 2012 accounts – Debtors note on page 13)

I think Rusbridger didn’t mean it as literally as I tend to read things. His focus is probably the moral argument, rather than the technical. But, as way of apology for my over-literal nature, the article is about tax…

Another thing in the Guardian’s defence, CTA 2010, s 44(2) says that you need to look beyond the immediate trade of the company and consider the trade of a group. I’m fairly sure that the argument would be that the newspaper is a part of the wider group’s expectation of making profit.

However, this is the type of argument that was dismissed by many (I don’t know if that includes the Guardian) when used in defence of Starbucks’ UK operations being described as profitable.

The provisions of CTA 2010, s 44 probably wouldn’t have been applicable in recent years for the Guardian anyway. It sounds as if there has been a reasonable expectation of profit:

Actually, for about 10 of the past 15 years the paper did manage to remain in the black. But the elemental forces which are buffeting the whole newspaper industry have hit the Guardian as severely as anyone else.

But, given the challenges in the newspaper industry, the question as to reasonable expectation of profit raises its head now. Are many newspapers, like the Guardian, facing genuine expectations of no profit?

It has to be a consideration for any newspaper business that relies on subsidy to operate, which might be a fair few by the sounds of things:

Now, many newspapers currently rely on some kind of cross subsidy. The Times and Sunday Times would not have got through the last two years without a handout from elsewhere in the Murdoch empire. The Washington Post newspaper division, which lost $166m in 2009, is doubtless happy to be part of the same company as the profitable Kaplan educational business. The billionaire Lebedevs, God bless them, support the Independent from their oligarchical interests elsewhere.

A newspaper is exactly the sort of enterprise that I can imagine being run without the reasonable expectation of profit, because of the desire of its owners to help inform the public in the way that they want.

A more cynical (realistic, perhaps?) person than myself might suggest that a certain amount of political leverage is also gained by running a newspaper.

Which makes me wonder, with Leveson rapidly fading in our memories, how does the idea of getting corporation tax relief on the costs of buying political influence sound?

I must admit I’m having a bit of trouble reconciling Rusbridger’s comments with the financials as shown on Duedil, which they take from Companies House. According to them, Guardian News & Media Ltd has made a loss for every year for which figures are available, from 2005 – 2012. It may be that the paper made an EBITDA operating profit, but not a GAAP net profit.

The general consensus is that GMG is a combination of two loss-making national newspapers supported by the earnings from, and sales of stakes in, a profitable car magazine and website (Autotrader). This was memorably described by the FT in December last year as ” a social worker and a second-hand car dealer handcuffed together as someone’s cruel idea of a joke”.